We use cookies to customise content for your subscription and for analytics.If you continue to browse Lexology, we will assume that you are happy to receive all our cookies. For further information please read our Cookie Policy.

FTC takes on a patent troll

Tackling the issue of patent trolls for the first time, the Federal Trade Commission charged MPHJ Technology Investments, LLC and its law firm Farney Daniels with making deceptive claims and fake legal threats accusing small businesses of patent infringement.

The administrative complaint marked the agency’s first action against a patent assertion entity.

According to the FTC, MPHJ purchased patents related to network computer scanning technology and then sent tens of thousands of letters to various small businesses across the country. MPHJ accused the recipients of infringing its patents and suggested they purchase a license.

MPHJ sent more than 16,000 letters that falsely stated that “many companies” had paid thousands of dollars for similar licenses, and it offered to settle with the recipients for a license of $1,200 per employee. When the first 7,300 letters were sent, however, not a single license had been purchased, the FTC said.

Another 4,870 missives, sent on Farney Daniels’ letterhead, threatened a patent infringement suit “which our client will be forced to file” if the recipient failed to respond within a two-week period. Although the letters included a complaint drafted for filing in the federal court closest to the recipient’s location, the defendants never filed a single lawsuit, the FTC alleged, and never had any intention of actually initiating a case.

The FTC reached a deal with MPHJ, its owner Jay Mac Rust and Farney Daniels in which they are prohibited from falsely stating that a lawsuit will be filed and which bans them from making deceptive representations when asserting patent rights, including that a patent has been licensed at particular prices.

To read the complaint and the proposed consent agreement in In the Matter of MPHJ Technology Investments, click here.

Why it matters: In a statement about the case, Jessica Rich, the director of the FTC’s Bureau of Consumer Protection, acknowledged that the action is the first time the agency has asserted its consumer protection authority against a patent assertion entity, colloquially referred to in some circles as a patent troll. “Patents can promote innovation, but a patent is not a license to engage in deception,” Rich said. “Small businesses and other consumers have the right to expect truthful communications from those who market patents rights.”